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Weak Business Jet Hurt General Dynamics’ Sales

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General Dynamics’ sales performance

Revenues for General Dynamics (GD) fell 2.8% year-over-year (or YoY) to $7.7 billion in 2Q16 compared to analysts’ consensus estimate of $7.9 billion. Except for the Information Systems and Technology segment where sales improved marginally by 0.6%, all other business units registered revenue declines.

In the Aerospace (XAR) segment, which is just another name for the Gulfstream business jet (PPA) subsidiary, sales fell 5.5% due to persistent weakness in demand. Business jet weakness has been reported across the industry with players such as Rockwell Collins (COL) and Honeywell (HON) also reporting weaker sales in business jet operations.

In General Dynamics’ Combat Systems segment, revenues fell 6.6% as lower sales to the Pentagon offset higher international sales in the quarter. The company is winning contracts at a lower rate than completions in the Combat Systems unit.

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General Dynamics’ operating margins

General Dynamics recorded operating margin gains in every segment except Marine Systems. Company-wide operating margins were up 30 bps (basis points) YoY (year-over-year) to 14%. The Aerospace segment was responsible for 40.3% of the company’s total segment profits. Its operating margins expanded 90 bps YoY to 20.3%, the highest of any segment.

Operating margins in the Combat Systems segment expanded 60 bps to 16.7%. The unit contributed 20.3% to overall segment profits. The Information Systems and Technology unit, the only segment that managed to eke out a sales gain, operating margins improved 20 bps to 10.9%, the lowest margin among all the segments.

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